Rental vacancy rates remain at historically tight levels, recorded at 1.5% nationally in May 2026, while rental growth has re-accelerated to 5.9% per annum. The combination of softening property values in some markets and rising rents is beginning to push gross yields higher, particularly in Melbourne, where yields have moved from near the bottom of the capital city rankings to the middle of the pack for houses and third highest for units.
However, yield compression persists in markets where values are still rising. Gross rental yields were at record lows in Brisbane and Adelaide for both houses and units, and for Perth houses, in May 2026.
Even under a relatively optimistic scenario, the yield uplift remains limited. “Under a scenario where capital city home values fell by 10% and rents rose by 10%, the gross rental yield would only rise by approximately 82 basis points, from 3.45% to 4.27%, which is still a long way off a positive cashflow scenario after allowing for costs,” Lawless said.
Mortgage costs represent the largest component of holding expenses, accounting for around 71% of total costs under the assumptions modelled. Investors with greater equity or larger initial deposits would face lower sensitivity to interest rate movements and would be better placed to achieve a positive net yield.
Historically, Australian property investors have prioritised capital growth over rental income. In the most recent growth cycle, investor activity approached record highs, comprising 41% of mortgage demand, even as yields were low and declining. The federal budget changes are expected to reorient investor focus toward income-generating assets, though the data suggests genuinely positive cashflow properties remain exceptionally scarce.